Decoding Compliance

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the latest s e c on da r y m a r k e t a na ly t ic s se r v ic i ng Or ig i nat ion SECONDARY MARKET Room for AIG Adds Improvement New Line of Business The industry giant will not serve clients interested in mortgage investment by consulting and managing the loan servicing for all loans purchased by Collective. A merican International Group (AIG) announced the creation of a new business unit to expand its mortgage investments. The new company, named Connective Mortgage Advisory Company, "draws upon AIG's investment expertise and the experience of its mortgage insurance subsidiary, United Guaranty Corporation, to identify and buy residential whole loan mortgages as investments," AIG said in a release. AIG will manage the loan servicing component for all loans purchased by Connective as long-term investments. William Dooley, EVP of investments and financial services for AIG, explained, "Direct investment in residential mortgage loans offers attractive investment returns and enables a proactive approach to managing mortgage risk." The new investment venture stems from AIG's experience with United Guaranty, its mortgage insurance subsidiary. United Guaranty "is contributing deep knowledge of the residential mortgage landscape to the Connective project," the release says. "With the support of AIG, United Guaranty became the mortgage insurance market-share leader with risk-based pricing products," said Donna DeMaio, CEO of the subsidiary. "United Guaranty's understanding of residential mortgage markets combined with AIG's investment expertise creates unique new investment opportunities for AIG." Connective will establish correspondent relationships with lenders, underwrite loans, and provide support throughout the loan purchase process. There are no plans for Connective to conduct any direct lending or securitization, AIG said. "United Guaranty's understanding of residential mortgage markets combined with AIG's investment expertise creates unique new investment opportunities for AIG." —Donna DeMaio, United Guaranty 74 | The M Report One GSE thinks the housing sector has made great strides in righting past wrongs but says it still has room to grow. H ousing may not be where it used to be, but on the upside, Freddie Mac suggested this indicates there's still plenty of room for the industry to grow. "[T]he level of housing activity is still near historic lows. This means that there is still room for substantial growth in housing and housing-related industries before we return to a more normal environment," Freddie Mac stated in its latest economic and housing outlook. This optimistic viewpoint was reflected in the GSE's forecast for housing in 2013, especially for housing starts. Freddie Mac projects housing starts in 2013 to increase to 950,000 units, or to be about 22 percent higher than 2012 levels. For 2014, the GSE expects another 26 percent increase in annual starts, bringing the total to about 1.2 million. "Across the nation, most local housing markets have room for sustainable growth, particularly in home construction and sales. As the broader economy heals, expect to see more good news with house prices continuing their recent upward trend, and home sales and housing starts continuing to post strong growth rates," said Frank Nothaft, Freddie's VP and chief economist. The GSE is also expecting home prices to increase 3 percent in 2013 and 2014. The report gave particular attention to price trends in metros where there were substantial increases through 2006, followed by even more severe declines in home values. According to the report, it's in many of these metros where there is much room for growth as the markets return to a more normal state. As home prices recover, sales should also stand to benefit. "The effect on sales should be accelerated as house price recovery allows homeowners who have been forced on the sidelines by negative equity to get back into the market," the report stated. Home sales are projected to rise to an annual rate of 5.45 million in 2013 and 5.8 million in 2014. On the origination front, the GSE predicts loan volume will total about $940 billion in the first half of 2013 before slowing to $760 billion in the second half. Activity is expected to fall further in 2014 as refinance share drops to 45 percent; origination volume for the year is an estimated $1.25 trillion, with second-quarter activity outpacing the rest of the year. Overall, the housing market is also "showing some love" through its positive contributions to GDP growth, a first since 2005, Freddie said. In 2012, residential fixed investment added 0.3 percent to GDP growth. Furthermore, the GSE says housing may perhaps add close to 0.5 percentage points to GDP growth in 2013.

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